Recruit Holdings Co Adr

This call is a simultaneous translation of the original call held in Japanese, provided solely for the convenience of investors. Thank you for joining the Recruit Holdings FY 2025 Q2 earnings call. I'm Mizuho Shin, Manager of Investor Relations and Public Relations. Today, I will give a brief talk about our business, then Junichi Arai, Executive Vice President and Chief Financial Officer, will give a presentation on results and guidance, followed by a Q&A session. Please note that today's session, including the Q&A, will be posted on our IR website after the event. Starting this fiscal year, we have integrated HR solutions from matching and solutions into HR technology. Accordingly, the year-on-year comparison of segment results in this fiscal year's financial presentation is based on FY 2024 pro forma figures, which assume that this integration had been effective as of April 1, 2024. Unless otherwise stated, comparisons will be made year-over-year. Lastly, please note that all references to dollars in this presentation refer to U.S. dollars. We have three business segments. HR technology features Indeed and Glassdoor, which together create a global two-sided talent marketplace across more than 60 countries with a focus on the U.S. As the core of our simply firing strategy, Indeed uses its broad reach, AI-powered matching, and tools for faster connections to make the hiring process more efficient for employers and help job seekers find jobs faster and more easily. This strategy is enhanced in Japan through the Indeed Plus job distribution platform and the integration of placement services, including Recruit Agent. Staffing consists of two major operations, Japan and Europe, US, and Australia. Between 2010 and 2016, we expanded to our current scale and structure through multiple global acquisitions of staffing companies. Marketing Matching Technologies, or MMT, consists of marketing solutions of the former matching and solutions. In Japan, MMT provides vertical matching platforms that connect individual users and business clients in areas like the lifestyle subsegment, which includes beauty, travel, dining, and SaaS solutions, as well as the housing and real estate subsegment and others. These platforms offer services including information and online reserving and booking services. Now, over to Arai-san. thank you very much we have slightly longer presentation than usual so I hope you could bear with me I will discuss the following four highlights of the FY 2025 Q2 earnings presentation. One, in HR technology, revenue in the U.S. for Q2 increased by 5.8% year-over-year to $1.33 billion. Two, we have upwardly revised the full-year U.S. revenue outlook in HR technology from... 0.3% year-over-year increase, basically flat, announced in May, to a 5.6% increase. 3. The full-year consolidated financial guidance has been revised upward consolidated EBITDA plus S for this fiscal year has been revised upward from 697 billion yen to 733.5 billion yen. 4. Net cash at the end of September 2025 was 590.5 billion yen. We commenced a new share repurchase program of 250 billion yen on October 17th. This is in line with the policy we announced in May 2024 to reduce net cash to around 600 billion yen by the end of FY 2025. After reviewing our consolidated results for Q2 and the first half, I will discuss the performance and outlook by segment, followed by our full-year consolidated guidance, and finally our capital allocation policy. Regarding fy 2025 q2 consolidated results in hr technology our focused monetization efforts were the primary driver of revenue growth successfully counteracting the impact of a softer job market in the u.s revenue in marketing matching technologies are or mmp increased and revenue in staffing remained flat. As a result, total consolidated revenue increased by 2% to 914.7 billion yen. As a result of continued efforts across all segments to further enhance productivity, EBITDA plus S margin was 22.7%, exceeding Q1 of this fiscal year driven by margin expansion in HR technology and MMT. EBITDA plus S margin over gross profit was 38.2%, reflecting our underlying cash flow generating capability. Before adding back stock-based compensation expenses, EBITDA margin improved compared to the same period last year, reaching 21.3%. For the first half of FY 2025, revenue decreased 0.3% to $1,793.5 billion. EBITDA plus S margin continued to expand, reaching 22%. Now I will move on to the results and outlook by segment. I will start by the results for HR technology. For Q2, segment revenue on the U.S. dollar basis increased by 4.5% year-on-year, and the 2.1% quarter-over-quarter to $2.41 billion. On a Japanese yen basis, segment revenue increased by 2.9% year-over-year to 355.7 billion yen. As for revenue by region, turning to our U.S. performance, despite an approximately 8% decline in job postings, U.S. revenue increased by 5.8% year-over-year and by 5.6% quarter-over-quarter to $1.33 billion, exceeding our initial expectations. This was driven by successful monetization development of paid job ads with a notable contribution from premium-sponsored jobs. This solution enhances our paid job ads by incorporating key features and leverages Indeed advanced matching and targeting technology. Revenue in Europe and others increased by 14.7% year-over-year to $509 million. The UK, Canada, and Germany together accounted for about two-thirds of Indeed revenue for Europe and others on a U.S. dollar basis. The revenue growth was primarily driven by the UK and Canada, where monetization development led to revenue growth of approximately 8% year-over-year, respectively, on a local currency basis, as well as by foreign exchange impacts. Starting this fiscal year, HR Technology Japan consists of job advertising services, placement services, and other hiring-related services after integrating HR solutions of the former matching and solutions. Revenue in Japan decreased by 7.2% year-over-year to ¥84 billion or declined by 5.7% year-over-year on a US dollar basis. Our job advertising service, Indeed Plus, which launched in January 2024, is performing above initial expectations. However, our placement services fell short of the initial assumption. This shortfall occurred because we underestimated the business impact of the system migration processes that followed our recent organizational integration. Even excluding the impact of the difference between gross to net revenue recognition, Related to the transition to Indeed+, overall Japanese revenue came in below our initial expectations. Segment EVITA plus S margin expanded to 37.9%, driven by improved productivity and enhanced operational efficiency in the U.S. and in Europe and others. Even in a business environment where the total number of US job postings continued to decline, the successful combination of a monetization development and improvements in operational efficiency and productivity was clearly reflected in segment EBITDA margin, which increased by 6.6 percentage points from the same quarter last year to 34.7%. As a result, For the first half, on a U.S. dollar basis, segment revenue increased by 4.1% year over year to $4.77 billion, and on a Japanese yen basis, decreased by 0.5% year over year to 697.5 billion yen. As for revenue by region, in the U.S., revenue increased by 3.4% year over year to $2.59 billion. In Europe and others, revenue increased by 13.7% year over year to $985 million. In Japan, revenue decreased by 5.8% year-over-year to ¥174.3 billion, or decreased by 1.3% year-over-year to $1.19 billion. Although placement services revenue fell slightly short of our initial expectations, job advertising services revenue performed above expectations, resulting in total revenue in Japan coming in slightly above our initial projections. Segment EBITDA plus S margin was 36.5%. For the first half, sales commission, promotion expenses, and advertising expenses in total amounted to approximately 13% of segment revenue, while employee benefit expenses and service outsourcing expenses totaled approximately 46% of revenue, reflecting the impact of the workforce reduction announced in early July, which began to take effect in the latter half of the first half. Now I will discuss the second half outlook. But before diving into the outlook, today I am introducing a new key performance indicator to track our monetization progress and serve as an important indicator of the future evolution of HR technology in the U.S., the U.S. average revenue per job posting on Indeed or USARPJ growth rate. Hereafter, we refer to the U.S. average revenue per job posting as USARPJ. For clarity, the U.S. ARPJ is calculated by dividing HR technology U.S. revenue by the total number of freed and paid jobs in the U.S., including those posted directly to Indeed and those aggregated from the Internet. It represents the average revenue generated per job posting on Indeed in the U.S., The U.S. ARPJ is based not only on paid job ads, but the denominator includes all jobs listed on Indeed, regardless of whether they are paid or free. Its year-over-year growth rate is the U.S. ARPJ growth rate. The revenue increase of 5.8% in the U.S. during this Q2 was driven by the U.S. ARPJ growth rate coming in at approximately 15% increase year over year, despite an approximately 8% decline in the total number of job postings. For the first half, the U.S. ARPJ growth rate was around 13% increase year over year, clearly demonstrating the progress and success of our monetization strategy. This chart shows the indexed trend in total number of U.S. job postings on Indeed from February 2020 to the present, represented here by the Indeed Hiring Lab U.S. Job Posting Index. This index is based on the total number of U.S. job postings used in calculating the U.S. ARPJ growth rate. It is important to understand that this index is based on both free and paid job postings on Indeed, which are sourced in two ways. Hosted jobs are posted directly on Indeed by business clients. Indexed jobs are aggregated by Indeed from employer websites and other sources across the Internet. Our CEO, Bickel, stated in May 2024 that we assume that hiring demand in the U.S. will hit the bottom after decreasing for another 18 or 24 months, i.e., this second half, and we will run our business based on that. Given the current U.S. business environment, We still expect hiring demand in the US to be broadly in line with our assumption at the beginning of this fiscal year, which is to continue a modest year-over-year decline throughout the second half with the trend bottoming out in Q4. Based on our assumption, we have revised our U.S. revenue outlook for Q3 and Q4. This chart shows the quarterly trend of U.S. revenue in HR technology since Q4 FY 2019, together with the index chart that I mentioned earlier. On the far right, we have added the HR Technologies assumed trend for the IHL index in the second half and the revenue outlook for Q3 and Q4. Looking at these results through Q2, as you can see, Through FY2023, HR technology U.S. quarterly revenue moved largely in line with this index. However, from the beginning of FY2024 through the first half of the current fiscal year, meaning six quarters, hr technology u.s revenue has decoupled from the declining trend in job postings this divergence is the direct result of ongoing developments in monetization which we have been successfully executing since our ceo deco announced the beginning of year zero in may 2024 a period of strengthening our foundation and preparing for a recovery in the business environment following the downturn. To provide clear insight into this divergence, we will report the US ARPJ growth rate as a new KPI. This metric represents our continued progress in evolving our business, capturing the success of our entire product and monetization strategy built on Indeed's foundation as a two-sided talent marketplace that connects job seekers and employers. Currently, paid job ads remain just under one quarter of the total number of U.S. job postings on Indeed. As we increase this penetration and as more business clients adopt our other value-added subscription services, including sourcing, branding, and new AI products, the U.S. ARPJ will rise and its growth rate will accelerate, further widening the diversions from the IHL index growth rate. Now, turning to our U.S. revenue outlook for Q3 and Q4 in U.S. dollars, despite an anticipated year-over-year decline of around 7% in the total number of U.S. job postings in the second half, we expect the U.S. ARPJ to continue growing year-over-year at around 16% for the second half. We expect revenue for Q3 to increase by 7.2% year-over-year and decrease by 4.8% quarter-over-quarter, reflecting the seasonality of the holiday period when both job-seeking and hiring activities tend to slow down. For Q4, we expect revenue to increase by 8.6% year-over-year and by 1.6% Q-on-Q. Our second half outlook is based on exchange rate assumptions of 145 yen to the US dollar and 172 yen to the euro. We expect segment revenue to increase by 7.8% year-over-year to $4.74 billion and to increase by 2.5% year-over-year to 687.9 billion yen.

By region, in the U.S., based on the quarterly revenue assumptions I discussed earlier, we expect revenue to increase by 7.9% year-over-year to $2.56 billion and to decrease by 1.4% compared to the first half, reflecting normal seasonality. In Europe and others, we expect revenue to increase by... 21.5% year-over-year to $1.03 billion, reflecting ongoing developments in monetization. In Japan, revenue in placement services, as explained earlier, will continue to decline in the second half, and we expect revenue to decrease by 7.2% year-over-year to 167 billion yen, or by 2.4% year-over-year to $1.15 billion. As I stated in the earnings presentation in May, in Japan, we are prioritizing the stable operation of our newly reorganized structure following personnel reassignments to facilitate future growth in the coming years. Since April, we have focused on maintaining stable operations for the integrated organization while launching a range of initiatives to drive business evolution and enhance efficiency, including actively leveraging AI to support future growth. Some of these initiatives are already yielding results, while others have required us to make adjustments. For those that did not meet our initial expectations, we have identified the underlying causes and are working to rectify and improve them. We remain committed to pursuing innovation boldly without fear of failure. Although corrective measures have already been underway, placement services generally take more than six months from the time a job seeker is introduced to a position until a successful match is finalized and revenue is recognized. Therefore, we expect the impact of these corrective actions to begin contributing from the first half of next fiscal year. Segment EBITDA plus S margin is expected to reach 35.1%, up 3.4 percentage points from 31.7% in the second half of last fiscal year, as we aim to balance monetization developments with further improvements in operational efficiency and productivity, even in a business environment where U.S. hiring demand continues to decline modestly year over year. Margin expansion in the U.S. and in Europe and others is expected to continue, driven by upward revisions of revenue and progress in efficiency improvements, including the workforce reduction implemented in July. In Japan, we expect lower revenue due to the performance of placement services to contribute to a lower EBITDA plus S margin. However, we also plan to control advertising and other promotional expenses carefully, which will partially offset the negative impact on margins. based on the results for the first half and the outlook for the second half the four-year outlook has been revised upward we now expect segment revenue to increased by 5.9% year-over-year to $9.52 billion, up from the initial outlook of a 2.4% increase to $9.2 billion. On a Japanese yen basis, we have revised our outlook upward to ¥1,385.5 billion, representing a 1.0% increase year-on-year from the initial outlook of a 2.8% decreased to 1 trillion 334.4 billion yen. By region, in the US, we have revised our outlook upward from the initial assumption of a 0.3% year-on-year increase to an increase of 5.6%, reaching $5.15 billion. In Europe and others, we have revised our outlook upward from the initial expectation of an 8.1% year-on-year increase to a 17.6% increase, reaching $2.01 billion. In Japan, we have revised our outlook downward from the initial expectation of a 2.7% year-on-year decrease to a 6.5% decrease to ¥341.3 billion and on a U.S. dollar basis to $2.34 billion, representing a 1.9% decrease year-on-year. Segmented EBITDA process margin has been revised upward from the initial outlook of 34.5% to 35.8%, representing an increase of 2.8 percentage points from 33% in the last fiscal year. Segment EPTA margin is expected to be 31.1%, representing an increase of 3.7 percentage points from 27.4% in the last fiscal year. As for staffing, segment revenue in Q2 increased by 0.8% to 421.3 billion yen. In Japan, revenue increased by 6.1% to 209.4 billion yen, driven by stable demand for staffing. In Europe, US and Australia, revenue declined by 3.9% to 211.8 billion yen. This represents an improvement from the first quarter, driven by increased orders from large business clients as well as the impact of the Japanese yen depreciation. Segment EBITDA plus S margin was 6.6%. For the first half of the fiscal year, segment revenue decreased 1.3% to 829.4 billion yen. Segment EBITDA plus S margin was 6.6%. For the second half outlook, segment revenue is expected to increase 2.3% to 846 billion yen. Segment EBITDA margin is expected to be 4.8%. For the four-year outlook, we have revised segment revenue to ¥1,675.4 billion and segment EBITDA plus S margin to 5.7%, with only minor changes from the figures disclosed on May 9th. Next, I will discuss marketing matching technologies or MMT. Regarding Q2 results, segment revenue increased by 6.3% year-over-year to 144.3 billion yen with revenue growth across all sub-segments. Revenue in lifestyle, which consists of beauty, travel, dining, and sauce solutions, increased by 8.5% to 76.9 billion yen, driven by the continued growth in new business clients in beauty. Revenue in housing and real estate increased by 4.3% to 38.5 billion yen, driven by the growth in the number of contracts closed. for custom homes through Sumo Counter, our face-to-face housing consultation service. Revenue in others, which includes car and bridal, increased by 3.5% to 28.8 billion yen. Segment EBTA plus S margin expanded to 32.3%, driven by appropriate cost control, principally related to service outsourcing expenses. For the first half, segment revenue increased by 6.7% year-on-year to 281.2 billion yen, and the segment EBITDA plus S margin was 31.9%. For the second half outlook, segment revenue is expected to increase by 3.7%. to 286 billion yen, driven by continued strong performance in lifestyle, including growth in new business clients in beauty and dining, and continued increases in the number of room nights and unit price in travel. Segment EBTA plus S margin is expected to be 22.2%. I will now explain the background behind the significant difference in EBITDA plus S margins between the first half and the second half of MMT. The primary factor is the seasonality of advertising and sales promotion expenses in the Japanese market. When planning for the next fiscal year, MMT carefully prioritizes these expenses across its sub-segments, consolidating proposals submitted by the respective business units. Based on the latest performance outlook during the fiscal year, MMT allocates funds intensively and effectively in line with these priorities when the number of actions by individual users on our matching platform increases. RQ4 coincides with the timing when the number of actions taken by individual users increases the most within the fiscal year due to the start of the new fiscal year in Japan in April, particularly in housing and real estate. By concentrating our spending on these expenses during this period every fiscal year, MMT aims to maintain and increase the revenue recognized in Q4 and in Q1 of the following fiscal year. In the previous fiscal year, Approximately 36% of total annual sales commission promotion expenses and advertising expenses broadly defined as marketing related expenses were recorded in Q4. And approximately 58% were recorded in the second half. with an EBTA plus S margin of 28.6% for the first half and 22.4% for the second half. In this fiscal year, In addition to the concentration of usual seasonal expenses in the second half, we will increase sales promotion expenses exceeding initial projections to support new growth initiatives across multiple areas aimed at realizing increased revenue in fiscal year 2026 and beyond. As a result, we expect approximately 60% of the annual marketing-related expenses to be recognized in the second half of this fiscal year. Moreover, we have a one-time impact from a planned update to MMT's accounting system at the end of the fiscal year. This upgrade will refine our revenue recognition policy, moving from a previous pro-rata monthly allocation method to a daily basis recognition. This one-time transition means approximately 5 billion yen in revenue and associated profit, which we had expected to book in March, will not be recognized within the current fiscal year. Taking this into account, we expect EBITDA plus its margin for the second half to be 22.2% compared with 31.9% in the first half. The four-year segment revenue outlook is largely unchanged with an expected increase of 5.1% year-over-year to 567.2 billion yen compared to the initial outlook of plus 5.1% year-over-year to 567 billion yen even after reflecting the one-off impact from the revenue recognition refinement that I mentioned earlier. Due to the one-off profit impact, segment EBITDA plus this margin has been revised downward from the initial outlook of 27.5% to 27.0%. Regarding our segment EBITDA plus S margin, our future targets remain unchanged. MMT aims to reach segment EBITDA plus S margin of 30% in fiscal year 2026 and approximately 35% by FY2028. We plan to share specific details about initiatives to drive revenue growth in the next fiscal year soon. now based on the segment outlooks let me turn to our consolidated outlook for the second half For the second half, we assume exchange rates of 145 yen per U.S. dollar and 172 yen per euro. As for the consolidated outlook for the second half of the fiscal year, revenue is expected to be 1,805,000,000,000 yen. EBITDA plus S is expected to be 339,000,000,000 yen, with the EBITDA plus S margin to be 18.8%. We have revised the four-year consolidated guidance, reflecting the first half results and the second half outlook for each segment. Revenue guidance has been revised from ¥3,520,000,000 minus 1.1% year-over-year to ¥3,598,000,000 plus 1.2% year-over-year. EBITDA plus S has been revised from 697 billion yen plus 2.7% year-over-year to 733.5 billion yen plus 8.1% year-over-year. EBITDA plus S margin is expected to be 20.4% with EBITDA plus S margin over gross profit assumed to be 34.5%. Profits attributable to owners of the parent has been revised to 448.3 billion yen, representing an increase of 9.8% from the last fiscal year, and basic EPS is revised to 313 yen, up 15.3% year-over-year, reflecting the impact of share repurchases. Consolidated four-year results will be expected to reach new record highs. Our capital allocation measures I would like to cover this topic last. During the first half, we repurchased approximately 53 million shares for 423.7 billion yen. Consolidated net cash and cash equivalents as of the end of September was 590.5 billion yen. A new share repurchase program with an upper limit of 250 billion yen started on October 17th and the market repurchase is currently being conducted through an appointed securities dealer with transaction discretion. The repurchase period is scheduled to continue until April 30, 2026 at the latest. We note that following the commencement of this share repurchase program, we may consider and execute strategic M&A transactions. The board of directors resolved today to pay an interim dividend of 12.5 yen per share. The total per share dividend amount is expected to be 25.0 yen. We retired treasury stock in March of both fiscal year 2023 and fiscal year 2024 using shares acquired during the respective fiscal years. We will also consider retiring the treasury stock to be acquired through our share repurchase programs in fiscal year 2025 at the end of the fiscal year, taking into account market and business conditions. Finally, regarding the total payout ratio for the fiscal year, if we assume the currently ongoing 250 billion yen share repurchase program is completed within the current fiscal year, in addition to the share repurchase results up to September 30th of this year, the total amount of shares repurchased this fiscal year will be 677.9 billion yen. Additionally, taking into account the expected dividend for this fiscal year, the total payout ratio is expected to be approximately 159% based on our full-year consolidated earnings forecast announced today. This concludes my presentation.

Now we'd like to proceed to the Q&A session. If anybody has a question, please click on the Zoom raise hand button. Please unmute before asking your question. Please limit your question to one initial question and one follow-up question per turn. We would like to start the Q&A session. So first, Nomura Securities, Ono-san, please. This is Ono from Nomura Securities. Thank you very much. So my first question. USARPJ, second half plan. 16% increase, you said. Majority of that is premium-sponsored ad contribution. Is that correct? Are there non-premium factors? Thank you very much. Thank you for the question. Of course, premium contribution... expected but it's not only that there are various factors that will contribute to this number we have incorporated other factors as I mentioned earlier subscription sales have partially started and according to what we experience now it seems likely this is gaining traction and it is received positively and as I mentioned earlier market will not continue mildly expanding so we want to harvest and exert this monetization impact so whether you think this is questionable or aggressive or we can do more I hope you could take a good guess So there are existing ones and the newly developed ones, newly launched ones. So when we announce our Q3 results, we will share with you what contributed to the results. Thank you. And my follow-up question is the current status of premium. If you could elaborate on that. know it is difficult to disclose but the breakdown between standard and premium for example what is the percentage of premium and the number of countries or regions that you have deployed this where you stand so if you could give us a hint on penetration it would be helpful So today we focused on the U.S. So how impactful a premium is in the U.S. market and how things look like in Europe. I hope we can use different parameters to explain going forward. But today we are focusing on the U.S. And when we disclose these numbers, then what is the revenue breakdown or... Hosted or indexed all these breakdown will continue so for today We'd like to refrain from giving you the breakdown But The number of users using this is increasing as we speak and Thank you, understood. I already used my right for one follow-up question, but in the premium, there are many functions. What is received well, particularly? So the biggest reason for the migration from standard to premium, merchant hiring, or... Vickle says... what we newly add on premium is what we often discuss and any new things we can launch in the non-premium so what we include in the package what we exclude from the package and the combination thereof and how we deliver this offer this to our users and have received the payment. There's so many things, factors, that we consider. So, of course, we may add new functions to raise the price of premium package, in some case, or do something else. So I think the combination is diverse. So we may add some new functions to increase the unit price, Or take another option. And that all determines the final result. So we may share with you Q3, Q4 results on that. I hope you could look forward to it. So the candidate and the targeting function. There are industries that like that and not so well in other industries. So For the industries where this is popular, the numbers are showing. So I cannot say this across the board. It's difficult to make a general comment. Market is large, and the needs differ from client to client. So thank you.